Norwegian swings to profit in 2Q on lower unit costs

Norwegian Air Shuttle said lower unit costs helped the airline earn a NOK300 million ($37 million) profit for the second quarter, reversed from a loss of NOK691 million in the year-ago period.

The low-cost, long-haul carrier, which has been growing aggressively—expanding its fleet and launching numerous new bases and destinations—has met with some skepticism over a pace of growth that is not seen as sustainable. Norwegian has sought to address these concerns, reiterating that growth would now slow and ramp-up costs decrease, in line with its strategy.

In the 2018 first quarter, Norwegian had posted a NOK2.2 billion operating loss.

As well as a decline in unit costs, its second-quarter profit was helped by a one-off gain amounting to NOK455 million, reversed from a NOK197 million loss, resulting partly from translation of working capital in foreign currency and a gain of NOK 254 million from forward contracts on currency and fuel.

Unit costs decreased 9% during the quarter, and by 19% excluding fuel.

Norwegian said it achieved the unit cost reduction despite recording the peak of its growth, with ASKs up 48% and increasing fuel prices. Traffic measured in RPKs grew 46% during the quarter.

Yields declined 10% compared with the second quarter of 2017.

“Norwegian today posted a set of results that appear to point towards significant cost reduction, as it puts the brakes on spending,” wrote Bernstein analyst Daniel Roeska in a research note. “However, digging a little deeper into the numbers raises more questions, as the 19% reduction in unit cost included other losses and gains relating to several non-operational issues.”

He added: “Flat maintenance expenses were a key driver of reduced unit cost across the quarter. There may be a chance that this is a timing issue, and the company may see a greater level of maintenance spending later in the year.”

The carrier has been attracting M&A interest in recent weeks, rejecting two full takeover offers from International Airlines Group (IAG) after the British Airways parent bought a 4.6% stake in Norwegian in April. Other parties, including Lufthansa, are also interested, whether in a full takeover, partnership or share purchase.

In the second quarter, three Boeing 787-9s and two 737 MAX 8s joined the fleet; Norwegian said this year it is taking delivery of 11 787-9s, 12 737 MAX 8s, as well as the two 737-800 aircraft that have already been delivered.

The airline carried 10 million passengers—16% more—during the second quarter, but load factor slipped by 0.9 percentage points to 86.8%.

“Despite being at the peak of our growth phase, we have been able to present a profit and decreased unit costs during the second quarter. Going forward, the growth will slow down and we will reap what we have sown for the benefit of our customers, staff and shareholders,” CEO Bjorn Kjos said.

Second-quarter revenue of NOK10.2 billion, up 32%, represented a record high for the airline, Norwegian said, with passenger revenue at NOK8.3 billion, up from 6.3 billion.

The carrier said demand and advance bookings had been “satisfactory” entering the third quarter. “We do, however, expect some reduction in late-minute third-quarter bookings following the warm summer weather experienced in the Nordic region.”

It said it expected ASK growth of 40% for 2018, with 34% and 38% in the third and fourth quarters, respectively.

ATW On-Location

A working group of fatigue experts from airlines, labor groups, and academia has released a best-practices guide to controlled rest (CR) on the flight deck—part of an effort to provide data-supported guidance on how to create and improve pilot-napping programs....More

I’m posting this blog with a link to what is believed to be a recording of the conversations between a Las Vegas tower controller and a number of pilots in an incident Nov. 7 that led to FAA issuing a new controller staffing policy today....More

We use cookies to improve your website experience. To learn about our use of cookies and how you can manage your cookie settings, please see our Cookie Policy. By continuing to use the website, you consent to our use of cookies.